Reconciling U.S Property Claims in Cuba

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iskiness of those cash flows; and the liquidation value (similar to depreciated replacement value), based upon the price that could be achieved through an orderly sale of all assets. The two methodologies yielded values of $5-9 million and $12 million, respectively. 46 The extreme difficulties facing the Commission in applying these various methodologies in the Cuba case where access to evidence and location were constrained by circumstances are evident in reading through the claims’ files. For example, take Cuba Claims Case 0485, Standard Fruit and Steamship Company. Initially, the Commission’s preliminary award offered full book value, oddly excluding depreciation even though it was noted in the claimant’s presentation. Then, as a result of expert testimony and additional materials, the Commission found that “the oral hearing warranted a determination as to value based upon factors other than book value,” yielding a much higher valuation of the waterfront property in question. The preliminary proposed award was $732,701.47, the final certified loss was for $1,930,125.91. Or take the claim of Starwood Hotels and Resorts (Claim CU-2-001), certified for $51 million under the Second Cuba Claims Program in 2005-2006. Starwood argued in favor of calculating the “value of the land to a willing buyer and a willing seller in post-Castro Cuba.” In the absence of an active commercial real estate market in Cuba, Starwood persuaded the Commission to base its evaluation of its lost properties on comparative real estate values around the Caribbean basin, including Puerto Rico, Costa Rica and Cancun. 47 To further complicate valuation, the Congress added this curious qualification: the fair market value should be calculated “without regard to any action or event that occurs after the taking”…nor should it “reflect any diminution in value attributable to actions which are carried out, or threats of action which are made, by the foreign government with respect to the property before the taking.” 48 That is, the Commissioners should extract themselves from the historical context in which the property was, or would have been, in existence. The Congress might consider this legal myopia “most…equitable to the claimant.” However, the real market value of the property would most probably have been diminished, perhaps considerably, if the actual revolutionary context—before and after the taking— were taken into account. 46 Price Waterhouse, “Ingenio Julio Buitrago (Montelimar): Diagnostic, Valuation and Privatization Strategy Report,” December 4, 1992, contract funded by USAID. As discussed in Richard E. Feinberg, “Nicaraguan Democracy and the Post-Conflict Resolution of Property Claims,” 2015, unpublished manuscript. 47 In contrast, in valuing claims in the German Democratic Republic, the Commission found that “it was unable to apply the familiar concept of fair market value due to its obvious absence in a communist society where controlled rents often don’t meet the actual cost of building upkeep. The Commission, likewise, was forced to reject the suggestion that it value property in the German Democratic Republic as if it were located in West Germany, since property cannot be valued separate and apart from its location.” FCSC, “Final Report on the German Democratic Republic Claims Program,” 1981, https://edit.justice.gov/sites/default/files/pages/attachments/2014/08/27/final_report_on_the_german_democratic_ republic_claims_program.pdf. 48 International Claims Settlement Act (ICSA), Title 22 § 1623 (a)(2)(B). Reconciling U.S. Property Claims in Cuba: Transforming Trauma into Opportunity Latin America Initiative at Brookings 23
In this regard, a counsel to the Cuban government has written that “no premium on book value should be allowed for going-business value, in circumstances in which a change in government economic policies has resulted in a doubtful earning capacity for the nationalized entity….Going-business value is a very substantial portion of many of the losses found by the Commission to have been suffered.” 49 The author cites as examples the Cuba claims of the Colgate-Palmolive Company and the Coca-Cola Company. In a similar vein, Chilean legal scholar Francisco Orrego Vicuña argued that valuation criteria must take into account local circumstances: it would be an error to impose valuation standards which “are not even remotely related to the complex economic and political realities surrounding an act of nationalization. The extreme example is perhaps that of a claim based on the application of market value for the valuation of property taken by a revolutionary government.” 50 These potential criticisms of the FCSC—its one-sided procedures, questionable selection of methodologies, ahistorical paradigm, and in the Cuba case, lack of location access and failure to update its claims decisions to ensure consistency with its own “continuous nationality” criteria—would give the Cuban government a plethora of arguments, should it choose to re-open the Commission’s valuations. Whether the Cuban government would want to do so, however, would be an important tactical decision, as it could hugely delay the negotiations. But in arguing for other concessions, the Cubans could correctly point out that the Commission’s methods were imperfect at best, and that the $1.9 billion awards number (plus the Commission’s six percent simple interest awards) should not be treated as sacrosanct. Rather, as the Commission itself notes, the certified awards are referred to the Secretary of State “for use in future negotiations” with the Cuban government. 51 This is precisely the logical conclusion of Ronald Bettauer, the veteran U.S. claims negotiator: “Thus, there can be strikingly different views on each side of the negotiating table as to which claims are valid under international law and what the appropriate valuation of a valid claim should be under international law….when the two sides have different perceptions of the facts and of how to apply the law to them, the only way to reach agreement is through a negotiated compromise—with respect to both the terms of the agreement and the amount of the settlement.” 52 49 Victor Rabinovitz, “The Impact of the Cuban Nationalizations on Compensation and Valuation Standards,” in Illich, op.cit., vol. 4, chapter IV, p. 153. 50 Francisco Orrego Vicuña, “The International Regulation of Valuation Standards and Processes: A Reexamination of Third World Perspectives,” in Lilich (ed.), op.cit., vol. 3, p.132, footnote 4. 51 FCSC, Annual Reports, Cuba – Second Program. 52 Ronald Bettauer, op.cit. Reconciling U.S. Property Claims in Cuba: Transforming Trauma into Opportunity Latin America Initiative at Brookings 24
Page 1 and 2: Reconciling U.S. Property Claims in
Page 3 and 4: Brookings Publications on Cuba Sinc
Page 5 and 6: Brookings recognizes that the value
Page 7 and 8: The nationalization of property als
Page 9 and 10: for interest payments well below th
Page 11 and 12: 2. Nationalization and Compensation
Page 13 and 14: “In the opinion of the Government
Page 15 and 16: More broadly, the U.S. insistence o
Page 17 and 18: agreement committed Cuba to pay $85
Page 19 and 20: • The terrorist bombing of Cuban
Page 21 and 22: 3. Claims of U.S. Nationals: Key Co
Page 23 and 24: Seven years later, on July 6, 1972
Page 25 and 26: ants could be further reduced if pa
Page 27: Valuation of Lost Properties As in
Page 31 and 32: As a rule, lump-sum settlements hav
Page 33 and 34: Solution 1: All-Inclusive Lump-Sum
Page 35 and 36: In summary, economic logic suggests
Page 37 and 38: in U.S. laws and regulations that r
Page 39 and 40: A Claims Resolution Committee To ne
Page 41 and 42: $50 “user’s fee” tax would ra
Page 43 and 44: Thus, there are a number of potenti
Page 45 and 46: In recent U.S.-Cuban relations, the
Page 47 and 48: Annex: Top 50 Certified U.S. Corpor
Page 49 and 50: About the Author Richard E. Feinber

Reconciling U.S Property Claims in Cuba

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